Globalization and Its Discontents isn’t about trade

I am probably one of the last persons interested in international economics to get around to reading Joe Stiglitz’s Globalization and Its Discontents, so I only have one comment to make.

The book is not about trade. Despite writing that “to understand what went wrong, it’s important to look at the three main institutions that govern globalization: the IMF, the World Bank, and the WTO,” Stiglitz solely focuses upon the International Monetary Fund and its greatest mistakes in the 1990s. Readers looking for insights into the World Bank or World Trade Organization will find little information. In fact, when Stiglitz does criticize the WTO, he provides (what I consider to be) incomplete information.

Late in the book, on page 216, Stiglitz states his first substantive complaint against the WTO:

The WTO puts trade over all else. Those who seek to prohibit the use of nets that harvest shrimp but also catch and endanger turtles are told by the WTO that such regulation would be an unwarranted intrusion on free trade. They discover that trade considerations trump all others, including the environment!

Jagdish Bhagwati:

But the Turtle-Shrimp decision at the WTO in October 1998 upheld GATT Article XX(g) on allowing the US to use it to protect turtles! It only objected to the selective and discriminatory way in which the US legislation was designed and directed at the Asian nations who had brought the complaint to the WTO. [What Really Happened In Seattle (PDF)]

Environmentalists might have a case against the WTO, but Dr. Stiglitz choose a poor example to demonstrate his complaint. See pages 156-158 of Bhagwati’s In Defense of Globalization for further discussion of the shrimp-turtle case and his case against using trade sanctions to promote environmental interests.

Sitglitz then ponders the representation of developing countries at the WTO:

While the voting arrangements at the IMF ensure that the rich countries dominate, at the WTO each country has a single vote and decisions are largely by consensus. But in practice, the United States, Europe, and Japan have dominated in the past. This may now be changing. At the last meeting at Doha, the developing countries… achieved some notable concessions…

The most fundamental change that is required to make globalization work in the way that it should is a change in governance. This entails… changes to ensure that it is not just the voices of trade ministers that are heard in the WTO. [p.225-6]

This is a call for the WTO to expand its governing mandate to non-trade issues. In making this case, Stiglitz implicitly concedes that the WTO has pursued a narrow agenda, rather than “dominating” the process of globalization. In fact, it has been the rich countries that have pushed for an expansion of the WTO’s mission, so as to tie non-trade issues like intellectual property rights to liberalization rounds at the expense of poor countries (an issue that Stiglitz notes on pages 245-6).

Stiglitz expresses concerns about transparency:

At the WTO, the negotiations that lead up to agreements are all done behind closed doors, making it difficult – until it is too late – to see the influence of corporate and other special interests. The deliberations of WTO panels that rule on whether there has been a violation of the WTO agreements occur in secret. [p.227-8]

The negotiations are opaque so that negotiators can make offers conditional upon a reciprocal concession. I imagine that the EU trade ministers would have been even less forthcoming in Hong Kong if every offer they made was subject to scrutiny by an audience in France. Similarly, legal decisions have traditionally been made in private so that a ruling can be judged on its merits independent of the intellectual process that produced it. It is difficult to imagine the US Supreme Court being forced to disclose its rough drafts of opinions. If Stiglitz believes that negotiations and deliberations ought to be transparent, he needs to explain how they would work. His few paragraphs are insufficient for me to understand his proposal.

On page 244, Stiglitz argues that the advanced economies have preached free trade while practicing protectionism. While it is true that developed nations have been hypocritical in this regard, it is important to remember that their rhetorical demands have not become reality, and poor nations remain vastly more protectionist than their rich counterparts. Thus, it isn’t true that the trade agenda has become “unfair” in the sense that the poor have been forced to liberalize more than the rich.

The WTO is mentioned a few more times: the Seattle protests on page three, the WTO’s establishment in 1995 on page seven, a similar note on page sixteen, the IMF-WB-WTO trio’s “domination” of the global scene on page twenty-two, the IMF’s faster pace of liberalization than the WTO on page 62, and the IMF-WB-WTO trio’s “set[ting] the rules of the game” on page 214.

While Stiglitz builds a strong case against the conduct of the IMF in Globalization and Its Discontents, his call for reform of the WTO is unconvincing, as he devotes few pages to the topic. However, Stiglitz’s next book, co-authored with Andrew Charlton, will remedy this. The text, forthcoming in a few weeks, is titled Fair Trade For All: How Trade Can Promote Development.

1 thought on “Globalization and Its Discontents isn’t about trade

  1. Jim

    You’re not quite the last person interested in international economics to read ‘Globalization and its Discontents’, but now I might be. I am reading Stiglitz’s “Whither Socialism?”, though, and so far it’s quite good.

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